>> Learn more about Adjustable Rate Mortgages

Fixed-Period Adjustable-Rate Mortgages

• This type of Adjustable-Rate Mortgage, (ARM) maintains the same initial interest rate for the first three, five, seven, or ten years of your loan, depending on the term you choose.
• Your interest rate then adjusts annually, and can move up or down as market conditions change. Be sure to ask your Fannie Mae-approved lender about the interest rate caps for both the annual adjustments and for the life of the loan.
• Your initial interest rate will be lower than a fixed-rate mortgage, so you may be able to afford more home.
• You are protected against interest rate increases for the first three, five, seven, or ten years of the loan, depending on which type of fixed-period ARM you choose.
• You may have the option to convert your ARM to a fixed-rate mortgage at the first, second, or third interest rate adjustment dates.
• You have time to improve your financial position (i.e., salary increases) or accumulate additional assets before the interest rate adjusts at the end of the fixed period.
• The lifetime interest rate cap for fixed-period ARMs is typically 5 to 6 percentage points above your initial rate. Your annual cap during the adjustable period is typically 1 to 2 percentage points above or below the current rate.
• Can be used to buy one-to four-family residences including second homes and condos, co-ops, and planned unit developments. Manufactured homes are also eligible. (Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation).

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One-Year Adjustable-Rate Mortgage

• This Adjustable-Rate Mortgage, (ARM) offers a low initial interest rate with an interest rate that adjusts annually after the first year.
• The rate cap per annual adjustment is usually 2 percent; the lifetime adjustment caps can be 5 percent or 6 percent.
• This type of mortgage may be right for you if you anticipate a rapid increase in income over the first few years of your mortgage. That's because it lets you maximize your purchasing power immediately. It may also be the right mortgage for you if you plan to live in your home for only a few years.
• Some one-year adjustable-rate mortgages (ARMs) let you convert to a fixed-rate loan at certain adjustment intervals - ask your Fannie Mae-approved lender which of their one-year adjustable-rate mortgages (ARMs) includes this option. Generally, conversions to fixed-rate mortgages are allowed at the third, fourth, or fifth interest rate adjustment dates.
• The one-year adjustable-rate mortgage (ARM) is most often indexed to the weekly average yield of U.S. Treasury Securities adjusted to a constant maturity of one year.
• Can be used to buy one-family, principal residences, including condos, and planned unit developments. Manufactured homes are also eligible. (Manufactured housing units must be built on a permanent chassis at a factory and then transported to a permanent site and attached to a foundation).

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